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Why You Should Consider Real Estate as an Alternative Investment
On February 12th, 2020, the stock market reached all-time highs then crashed. The Dow Jones Industrial (DJI) sat at a lofty 29,551.42 by market close. Analysts were convinced we were about to break 30,000 for the first time in history, extending the already-historic 11-year bull run.
Just two weeks later, the sky began to fall. From February 24th to the 28th, world markets suffered their greatest declines since 2008. After a short bull rally, the markets crashed again on March 5th. For the next two and a half weeks, they kept falling.
The Volatility Index (VIX), also known as the ‘Fear Indicator’, surged past its 2008 highs all the way to 82.69 by close of trading on March 16th. Then, on March 23rd, the DJI fell all the way down to 18,200 before closing around 18,591.93, a 37% drop from the February 12th peak. It was the fastest 30%+ decline in history.
As of April 3rd, the DJI is resting at 21,052.53, still 29% below the peak during a second bull rally that is beginning to fade.
How will the 2020 market crash compare to previous crashes? It’s hard to say right now. Events are still unfolding. We’re not sure when the coronavirus pandemic will peak. Although the scientific community seems to agree that we’re still 12–18 months out from a viable vaccine.
That being said, we can certainly compare what’s already happened so far in 2020 with the biggest crashes in US history. Let’s see how our current market crash compares.
Over the past 100 years, there have been multiple market corrections (defined as a 10% drop from the peak) as well as multiple bear markets (defined as a 20% drop from the peak).
In fact, there have been 34 bear markets from 1900–2014. Using the S&P 500 as a benchmark, there have only been 9 major stock market crashes in that same timeframe where the markets fell by more than 25%:
Compared to the previous nine bear markets that saw the S&P 500 fall by more than 25%, the 2020 market crash (37%) is in 5th place. Only the Yom Kippur crash (48%), the Dot Com crash (49.1%), the Great Recession (56.4%), and the Great Depression (86.1%) were worse.
Does that mean our current crash isn’t that bad? Not necessarily. Even if we don’t fall more than 37% from the peak, keep in mind that the market crash from 1980–1982 (36.1%) still lasted for 21 months. On the other hand, the Black Monday crash (33.5%) was over in just 3 months.
In volatile, uncertain times like these, how do you make the right decisions for your portfolio? The good news is that there are several strategies you can choose, from hedging with volatility ETNs or exploring alternative assets that could provide uncorrelated market performance.
HUDSONPOINT Capital has been advising clients for 20 years on how to best access alternative investment vehicles that complement their investing goals and long-term vision. If you want to discuss how to best rebalance your current portfolio, we’re more than happy to help.
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The performance quoted herein represents past performance. Past performance does not guarantee future results. Investors cannot invest directly in an Index and performance represents gross returns without net fees if any.
This is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation of any products or services. Opinions are subject to change with market conditions. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal.
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